Korea Exchange fines Deutsche Bank unit $888,000

AP News
Posted: Feb 25, 2011 7:03 AM
Korea Exchange fines Deutsche Bank unit $888,000

South Korea's main stock exchange slapped a record fine on the local unit of Deutsche Bank AG over a sharp decline in the benchmark index late last year that resulted in sanctions by the country's financial regulators.

The Korea Exchange said Friday in a statement that it would fine Deutsche Securities Korea a total of 1 billion won ($888,000) for trading rule violations. It was the biggest fine ever handed out to a member of the exchange, according to KRX spokesman Won Yong-joon.

The exchange, known as KRX, also demanded that Deutsche Securities Korea take disciplinary action against three employees. It called for one to be dismissed or suspended. Two other employees should either have their pay reduced or be reprimanded, it said. The KRX did not identify the employees.

Lee Chul-jae, director of the exchange's market oversight division, told reporters that additional penalties are possible if the demands are not acted upon, according to Won. Deutsche Securities Korea has a month in which it can appeal the fine and the demands for employee punishment, Won said.

Deutsche Securities Korea said in a statement that it "deeply regrets" the action taken by the exchange, though added it "respects its decision to impose such penalties."

The exchange's action came after South Korea's financial regulators said Wednesday they would ask prosecutors to investigate five Deutsche Bank employees in South Korea, Hong Kong and New York over the purported price manipulation and unfair trading.

The regulators also said that they would suspend some securities and exchange traded derivatives operations by Deutsche Securities Korea for six months from April 1. The local unit was also to be referred to prosecutors.

Regulators and the Korea Exchange had been investigating a steep fall in the Korea Composite Stock Price Index during the final minutes of trading on Nov. 11. The index, known as the Kospi, closed 2.7 percent lower on that day.

The end-of-session plunge came on a so-called triple-witching day when stock options, stock index options and stock index futures all expire. The phenomenon, which occurs four times a year, can lead to heightened volatility in share prices. The regulators said that the alleged manipulation involving spot and futures transactions resulted in illegal profits of 44.9 billion won.

Deutsche Bank said in a statement Wednesday that it was "disappointed" with the findings and expressed regret over the penalties imposed and the referral of its employees and South Korean unit to prosecutors. But it said it would continue to cooperate with South Korean authorities.

The decline came on a day that South Korea was in the international spotlight as a two-day Group of 20 summit meeting began in Seoul, the country's capital. Coincidentally, Josef Ackermann, Deutsche Bank's chairman and CEO, was in Seoul to participate in a business forum held in conjunction with the summit.